HONG KONG, June 13 (Reuters) – The yen fell to a 24-year low against the dollar on Monday, as the gap between Japanese and US benchmark yields widened after hot-button US inflation data pushed US Treasury yields into the US had driven up.
The dollar surged as high as 135.22 yen, the highest since October 1998, after gaining in each of the past seven sessions, as policy divergence between dovish overseas central banks and the dovish Bank of Japan ( BOJ) is becoming increasingly clear.
Efforts by central banks to raise interest rates to curb inflation will remain in focus this week. The Federal Reserve and Bank of England are expected to hike rates at their meetings, and there’s a chance the Swiss National Bank will do the same.
Little change is expected from the BOJ, however, which on Monday announced it would buy 500 billion yen ($3.70 billion) worth of Japanese government bonds on Tuesday, as part of its policy to cut the benchmark 10-year bond Keeping returns within 0.25 percentage points of their 0%. Target.
In contrast, the benchmark 10-year US Treasury yield hit 3.2% early Monday after gaining almost 12 basis points on Friday.
The US two-year yield extended Friday’s gains to 3.194%, the highest since late 2007.
US inflation beat expectations on Friday, prompting bets that the Fed will have to hike rates more aggressively. Market prices are showing about a two-thirds chance of gains of at least 125 basis points during the next two Fed meetings – Tuesday and Wednesday of this week and in July, according to the CME’s FedWatch tool. Continue reading
That means at least a 75 basis point hike, which would be the biggest single-session hike since 1994.
Higher energy prices have also weighed on Japan’s balance of payments and weighed on the yen.
“What could go wrong in the yen has gone wrong and continues to go wrong,” said Paul Mackel, global head of FX research at HSBC, adding that it is important to monitor whether Japanese investors are willing to take more unhedged currency risk portfolios.
“The big thing now is whether locals will start changing their so-called FX hedge ratio, which could lead to more sustained demand for FX against the Japanese Yen. If so, that keeps the currency on a weakening path, or at least stops strengthening.”
Monday’s declines follow a short-lived yen rally late Friday, when Japan’s government and central bank said they were concerned about recent sharp falls, a rare joint statement that stands as their strongest warning yet that authorities could step in to stop the to support currency. Continue reading
Expectations of a more hawkish Fed aren’t just driving the dollar higher against the yen. The dollar index, which tracks the greenback against six peers, rose 0.3% to 104.58, its highest in four weeks.
The euro was trading at $1.0490, down 0.23%, and the sterling was 0.23% lower at $1.2287, which received little support from expectations that the Bank of England would hike interest rates on Thursday will increase in what would be its fifth increase since December. Continue reading
The Swiss National Bank also meets on Thursday and a 25 basis point hike is on the cards. Continue reading
The risk-friendly Australian dollar fell as much as 0.6%, falling to $0.6998, a three-and-a-half week low, as fears over the impact of higher interest rates pushed investors to perceived safer assets.
Similarly, bitcoin, also a so-called risk asset, was under pressure, falling to a fresh 18-month low of $24,888, as cryptocurrency lending firm Celsius Network said it would pause inter-account withdrawals and transfers due to “extreme market conditions.” Continue reading
($1 = 135,0200 yen)
Reporting by Alun John; Editing by Sam Holmes, Robert Birsel
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